MPA puts the question to three top brokers.
MPA asks three leading brokers whether they still have many clients applying for interest-only loans.
Kirsty Dunphey
DirectorKirsty DunpheyUp Loans
With my background being 20 years in real estate and specifically property investment for the past six years, a large percentage of my clients are investors. As such I’m still definitely discussing the possibility of interest-only loans with each of them based on their own needs.
What I feel is vital to these discussions are the reasons behind the strategy and making sure that my recommendations are in conjunction with the client’s accountant’s thoughts. Of course we also look at their overall situation, including personal debt against owner-occupied property, which is typically not tax deductible debt.
In addition, we look at future purchase plans – is this investor quite happy to sit with one property, or do they have larger plans? Oh, and of course servicing! Making sure the client understands the ramifications after the interest-only period has ended. So it’s a bit more conversation with the clients, but that’s the part of the job I love anyway.
Jeremy FisherDirector and founder
1st Street Home Loans
The brokers at 1st Street are still submitting applications for interest-only loans, although mainly for our investor clients given the favourable tax benefi ts they receive. It does seem the volume of investment loans has reduced since ASIC’s changes in August, and this may have led to the fall in market share of interest-only mortgages.
Generally we encourage our clients who are owner-occupiers to make principal and interest repayments in order to pay their loans off sooner. This is even more important whilst rates are at record lows as we believe it is only a matter of time before rates do increase, and we want to ensure our clients are protected from higher repayments by overpaying whilst interest rates are at the current level.
Deanna EzzyFinance strategist
Trilogy Investment Property Funding
Yes, I still see a lot of interest-only loans. Most of my clients buy IPs. Interest-only is preferable so they can focus on paying down owner-occupier debt. If buying an owner-occupied home, but the two- to fi ve-year plan is that the property will become an IP, it makes sense to have an ‘IO + off set’, rather than P&I.
I’ve seen it many times, where my client who has paid down their loan wants to upgrade to a larger home and rent out the old property. Because they’ve used their money to pay down the current loan, they have no deposit for the new property. We now need to borrow against the old property, to help fund the purchase of their new owner-occupier home.
As a result, their debt is structured around the wrong way, ie lots of owner-occupied (non-deductible) debt and hardly any investment (tax-deductible) debt. If they had chosen IO + off set from the beginning, they wouldn’t be in that predicament.
